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Western brands navigate a new Alibaba online sales channel

January 7, 2015 10:18 AM

Is the glass half empty or half full? It depends on how you look at it. And that also seems to be true of Tmall Global, Alibaba Group’s new online marketplace that promises to open up online sales in China to foreign companies that have not obtained a license to do business in that country.

Alibaba launched Tmall Global in February 2014, and says 5,400 retailers from 25 countries have opened stores on the new shopping portal. Total sales increased 10-fold from Tmall Global’s first month of operation, February, to November, Alibaba says, though it has not released sales figures.

An article in the Wall Street Journal last month entitled “Alibaba’s Tmall Global Site Stumbles” suggested that Western brands are disappointed with the results. But Internet Retailer research suggests some overseas firms are getting good results, and others are learning how to sell in China—and how to work around advertising restrictions imposed on foreign firms without a business license from the government.

Among the executives cited by the Wall Street Journal was Warren Matthews, CEO of New Zealand-based nutrition products brand Xtend Life. The article quoted him as saying that, after spending $39,000 in marketing, the results were disappointing and that “we may have to consider pulling out.” Xtend Life, which sells on Tmall Global through an online shop created by New Zealand Post, the country’s postal service, has been offering its products on the Chinese site for three months, Matthews tells Internet Retailer. While he declined to elaborate on any problems selling on Tmall Global, he said that the company “is confident of a positive outcome.”

The New Zealand Post store launched on Tmall Global on Sept. 26. “Basically, we are satisfied with Tmall Global and we believe selling through Tmall Global to Chinese online consumers is a feasible solution,” Vallen Han, New Zealand Post’s Asia marketing director, posted to the company’s account on the Weibo social network in China. “Although for now we only sell a few brands’ products, our total sales have exceeded 450,000 yuan ($72,000) after three months.” New Zealand Post’s Tmall Global store offers about 100 products from five brands, including Xtend Life.

Alibaba says at least 30 companies generated at least 10 million yuan ($1.61 million) in sales each within three months of beginning to sell on Tmall Global. The most popular product categories on Tmall Global are food, cosmetics, children’s goods, housewares and electronics, according to Alibaba.

Among the U.S. merchants that have touted its success is Costco Wholesale Corp., the warehouse store operator that is No. 14 in the 2014 Internet Retailer Top 500. Costco only launched its store on Tmall Global in November, just ahead of Nov. 11, the big online sales day in China known as Singles’ Day. Costco reported its sales that day topped 22 million yuan ($3.55 million). “Our performance on Singles’ Day shocked and surprised our management and it totally transformed our annual business plan,” Costco said in a statement. The U.S. retailer says it plans to add more products to its Tmall Global shop in 2015.

U.S. nutrition brand Nature’s Bounty, which launched its store on Tmall Global in August, booked $200,000 of sales in September and close to $700,000 in November, the company says. The Alibaba platform was particularly helpful for a nutritional supplement company, because it allowed Nature’s Bounty to avoid the onerous process of winning Chinese government approval for the import of nutritional supplements. “Our performance far exceeded what we had planned for,” the company says in a statement. “We were able to offer a wide range of products that would otherwise take years to register for regular importation. What we realized was that there’s that group of very educated Chinese consumers looking for us, especially some of our hero products that have sold well in the U.S. market. You just can’t really find any other platform that would provide you such growth opportunities.”

The fact that Chinese consumers already knew Nature’s Bounty’s and Costco, which also has been selling supplements and food items online to Chinese consumers, may account for their early success, where others have struggled. That’s because companies without a government business license are limited in the kinds of advertising they can do in China. That includes restrictions on placing ads on search engines, including the search pages of Alibaba’s two main marketplaces—Taobao and Tmall—where many Chinese consumers start their searches. Those two online shopping portals account for about 80% of online retail sales in China, a dominant position that contributed to Alibaba’s record-breaking $25 billion IPO on the New York Stock Exchange in September.

For brands that are not well known in China it can be hard to get noticed on Taobao and Tmall’s search engines. And those search pages are the source of the traffic that accounts for 60-70% of the sales that take place on Alibaba’s sites, Alibaba says.

“If a brand is not very famous, like Costco, although they are great brands in their home market, Chinese consumers seldom know them,” Hagard Wei, CEO of Chinese e-commerce consulting firm, Zhejiang Zhongpan eCommerce Co., tells Internet Retailer. “After entering China, they need at least one year to educate consumers and invest lots of money in marketing to enhance their visibility in China.”

There are other ways besides showing up high in organic search results on Taobao and Tmall, or advertising on those search engines, to drive traffic to a Tmall Global store, says an Alibaba spokeswoman. “Tmall Global offers merchants various promotional campaigns around special holidays and events such as Singles’ Day, Chinese New Year and Valentine’s Day to drive traffic to the merchant stores,” she says. She says merchants can also advertise on TaobaoKe, Alibaba’s affiliate marketing platform, and Juhuasuan, Alibaba’s group-buying site. Another program called Free Trial enables Tmall Global brands to send free product samples to consumers.

“Understanding how Alibaba operates is the starting point for overseas brands entering China,” Wu Qian, general manager of Tmall’s international business-to-consumer unit, tells Internet Retailer. “There are now more than 1 million visits per day to the product pages on Tmall Global. In the ecosystem of Alibaba Group, the merchants on Tmall Group have equal access, compared with merchants on other Alibaba platforms.”

While noting that Alibaba must obey Chinese law restricting foreign companies from placing certain kinds of ads, she says Tmall Global merchants can advertise on the TaobaoKe affiliate network and place banner ads on the home page on Tmall Global. Plus, she says, Alibaba is working to improve Tmall Global retailers’ position in organic search results. “We plan to increase the priority of Tmall Global and allow Tmall Global stores to have a relatively higher rank in search in the future,” Wu says.